Eleven months on from the first round of hearings for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Commissioner Hayne’s final report has been released.

Aged Care Royal CommissionSetting the tone for the Aged Care Royal Commission

Last week’s hearings for the Royal Commission into Aged Care Quality and Safety, introduced the leaders of some of Australia’s peak bodies, unions, consumer organisations and the Secretary to the Department, Glenys Beauchamp. In all 26 witnesses were called.

The 2019 Biotechnology Industry Position survey conducted by Ausbiotech and supported by Grant Thornton has revealed that new technologies across regenerative medicine and medicinal cannabis are disrupting the industry, and Australia's global strength in clinical trials continues to drive contributions to the economic and social fabric of the country.

mid-sized business reportManufacturing is critical to our economy – how can we support the sector?

Although the knock-on effects of the Australian automotive industry exiting our country are yet to be fully understood, the industry is evolving, and manufacturing continues to be a major employer and critical to our overall economy.

There is a lot of noise around the property sector at the moment – and it’s not all positive. Prices are down – but this shouldn’t be a surprise when some markets (namely Sydney & Melbourne) saw unprecedented hikes in recent years.

APRA releases prudential reforms to support outcomes

In December 2018 APRA released a suite of prudential reforms to support its long standing priority of improving member outcomes.

The reforms consist of revisions to the existing standard SPS220 Risk Management and new prudential standards and practice guides, being:

SPS515 Strategic Planning and Member Outcomes

SPG515 Strategic & Business Planning

SPG516 Outcomes Assessment

The package of reforms will be effective 1 January 2020. APRA also issued a response to the industry submissions received during consultation phase.

What has changed since the initial consultation package was released?

Relaxation of prescriptive expenditure policy requirements, but funds still need to consider expenditure in the context of business planning

Removal of some prescriptive business planning requirements, but business plan initiatives need to be detailed:

KPI’s assume increased importance in monitoring and assessing performance of the entire business plan

Funds must explicitly consider outcomes being sought for members and results of current and prior outcomes assessment

Removal of SPG221 Adequacy of Resources as principles are now enshrined in SPS220

Removal of SPG222 Management of Reserves as the key concepts are included in SPG 515 Strategic and Business Planning

Change to reporting requirements will be subject to a separate consultation, likely during 2019

Changes to opt-out processes proposed in SPS250 Insurance in Superannuation have been deferred until the final form of legislative changes arising from the 2018-19 Federal Budget are known.

Insight

Interestingly, the choice of words by APRA falls short of deferring reform until the relevant regulation is passed or effective.

APRA highlights the need for funds to produce high-quality value for money superannuation products and services and ensure their business operations are soundly and prudently managed. There remains no definition of “member outcomes” leaving this a complex and judgemental area. Trustees should carefully consider their fund member demographics and invest time to develop well-constructed and relevant outcomes.

What do Superannuation Fund Trustees need to do now?

Develop an implementation strategy to ensure the fund is ready to comply with the new requirements and guidance in advance of 1 January 2020

Consider and define what outcomes the fund seeks to provide to members:

Absolute terms, e.g. Net investment return/ return above CPI, the percentage of members at retirement age likely to exceed ASFA retirement standards, position in quartiles

Consider impact of investments, insurance benefits, scale, product features and fund expenditure on outcomes paid to members e.g. Construction on investment options, asset allocation, availability and cost of insurance – notwithstanding the potential impact of opt-in reforms yet to be regulated

Consider how to segment membership into cohorts for meaningful outcomes assessment – APRA provide useful examples of this

Include legacy and DB products – and consider transition plans for decommissioning such products

Identify any changes to operations that would improve outcomes provided to members:

A positive obligation to identify and pursue opportunities for improving outcomes, where appropriate

Targets and goals should be areas not likely to be very easily achieved based on industry forecasts

Ensure the fund has a Management Information System (MIS) to comply with SPS220

Insight

While it is likely a fund will have an MIS, the fund may need to consider whether its MIS adequately facilitates effective risk management as well as monitoring and assessing KPI’s in accordance with SPG515 and SPG516.

Review timing of business planning processes and ensure first outcomes assessment is undertaken during or prior to business planning

Insight

Business planning cycles commonly occur over the February to April period each year. Funds may wish to carefully consider the merits of performing an outcome assessment prior to their business planning process.

Review content of the business plan to ensure it meets the guidance set out in SPG515, including:

Sole purpose test – consider consistency of business objectives of related parties and key service providers